What is the rationale behind Trumponomics?

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SIMON BROWN: I’m chatting now with Hywel George, Director of Investments at Old Mutual Investments. Hywel, appreciate the early morning time. The rationale behind Trumponomics – is it fair to say that the problem is perhaps fairly simple to identify, and that is far too much debt in the US economy?

HYWEL GEORGE: Good morning, Simon. Good morning to your listeners. Yes, that is the basis of the problem which President Trump is attempting to fix. What lies behind that in terms of the debt pile in the US right now, which is about $36 trillion, which is about 123% of GDP, is it is a high number. What lies behind that is really substantial government spending and a paucity of tax receipts. And that problem is only getting worse and the debt pile is accelerating away from them.

SIMON BROWN: Hence there are lots of moving parts in what he’s trying to do to resolve this. Part of this has been reduced spending. We saw the Elon Musk attempt via Doge – perhaps not as great as hoped, certainly nowhere near the initial $2 trillion number. It’s reducing spending and then it’s around trying to get that private sector sort of investing. That again ties into his tariffs. We can say the markets might hate them, and he might change his mind a lot, but the logic there is to try and get some investment back into the US.

HYWEL GEORGE: That is correct. Say what you like about Trump, I guess, but objectively he does have a plan and the plan is to shift resources from the government to the private sector. That means a few things. Number one would be deregulation in the private sector. We’ve seen that in the fossil fuel industry as one example, which doesn’t quite find favour with everyone, but that is their policy.

Secondly, reducing taxes on people and corporations and then raising money through tariffs, be it directly through tariff revenue or relocating businesses back onshore into America and making American businesses more competitive offshore.

So it’s a multi-pronged policy and it’s a very large experiment. It hasn’t really been tried at this scale before. It’ll be, if nothing else, very interesting to see if it works or not.

SIMON BROWN: I take your point, absolutely. We can see the logic. For example, lower taxes. People are going to go and spend more. That’s good for growth. That’s good for businesses in America. It’s the size of it, absolutely, in terms of what he’s trying. And of course he has only one term to do it.

China – I suppose we’ve seen its global expansion over the last couple of decades. It’s really just about checking them and kind of keeping America as number one – or is it also a sense that there is an unfair relationship and trying to level that playing field a little bit more in the US’s favour?

HYWEL GEORGE: I think it’s a combination of those things, Simon, and I would say in Trump’s mind it won’t be him in the White House but he does see the Republicans as having more than one term.

Now the Democrats do appear to be in some degree of disarray, so he can see JD Vance taking up the reins in four years’ time. So he thinks he’s got a longer runway than just the four years – and it will take longer than that. Part of it is offshore geopolitical policy in terms of the US declining in its global reach. I think that was fairly clear to a lot of people. China was expanding through the Belt and Road Initiative. Trump doesn’t want conflict with China, but he does want to check its unbridled growth across the world. China has been very successful so far in terms of winning that race.

And part of the co-opting of the Middle East back into the US sphere of influence, bolstering Europe to create a stronger North Atlantic Alliance, as I call it, moving into the Arctic, which actually is important – all of that is re-establishing American influence abroad, and Trump’s being very aggressive about that.

SIMON BROWN: That’s part of it. And the tariffs – he comes out with giant numbers, pauses, drops them, gives 90 days. The giant numbers are sabre-rattling. What he’s really trying to do is get these trading partners to the table, get a better deal. Truthfully, a 10% tariff might be slightly inflationary, but it’s also revenue-generating for America.

HYWEL GEORGE: Quite. That is the art of the deal. And a 10% tariff is now seen as fairly modest, whereas before all this happened it seems very high. That’s kind of the genius of Trump, if you like, in terms of his negotiating tactics. But the difficulty when you do it at this kind of scale globally is if you and I are negotiating it can kind of work, but if you’re negotiating with the entirety of the rest of the world, then the uncertainty it does create and the collateral damage along the way may mean that the end does not justify the means. We’ll have to see.

SIMON BROWN: That’s it. There is definitely a plan here. We can argue the nuances of it. There’s definitely a plan. It’s going to be messy and truthfully it simply might not work. You mentioned earlier that we get to kind of watch this in real time from the sidelines. These are perhaps historic moments that are playing out and we don’t know the final end.

HYWEL GEORGE: That’s correct. What I am clear about is that something did need to be done in terms of the US debt pile. And it took the US as a nation 220 years to build up its first $1 trillion of debt, and it’s now adding $1 trillion of debt every six months. That’s unsustainable, so that has to be reined in in some way.

And the private sector of the economy, which has been lagging, does need to get going and America does need to re-establish its place in the world. We’ll see if this enormous experiment is the way to do it.

SIMON BROWN: Yes. But to your point, the debt is a problem. It is simply too much. That’s a staggering stat – 200-plus years of debt now every six months.

We’ll leave it there. Hywel George, Director of Investments at Old Mutual Investments, appreciate the early morning.

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